Mumbai: The Reserve Bank of India (RBI) is set to convene with banks, primary dealers, and other key bond market participants this week to deliberate on the government’s borrowing strategy for the second half of the fiscal year, spanning October to March. The discussions are taking place amid mounting pressure on banks, which have been facing significant mark-to-market losses due to a recent surge in bond yields.
According to multiple treasury sources, the two-day consultation scheduled for Wednesday and Thursday will focus on the prevailing market conditions and possible measures the RBI could implement to ease stress. The central bank is expected to seek feedback from market participants to help frame the October-March borrowing schedule. Traditionally, India releases its detailed borrowing plan for the fiscal year’s second half in the last week of September.
The government has already raised 8 trillion rupees through bond sales in the first half of the fiscal year and plans to borrow 6.8 trillion rupees in the second half. A key concern for investors is the supply of ultra-long bonds, particularly those with maturities of 30 to 50 years. Yields on these long-duration bonds spiked by 30 basis points in August, significantly outpacing the 19-basis-point rise in the 10-year benchmark yield. The trend follows the RBI’s decision to maintain interest rates last month and its inflation projection, which anticipates prices rising above 4% in 2026.
Market sentiment has also been affected by the government’s announcement of proposed cuts to goods and services tax (GST) rates, which could potentially reduce revenue and necessitate additional borrowing. Large banks have already approached the RBI to highlight their losses and urge intervention, seeking measures to restore market confidence and stabilize institutional demand for bonds. Investors, in particular, are requesting a reduction in the issuance of ultra-long securities to prevent further market disruption.
The outcome of this week’s consultations is likely to shape the RBI’s approach to managing government borrowing, influencing both liquidity and interest rates in India’s bond market. Analysts suggest that careful coordination between the central bank and market participants will be critical to sustaining confidence in government securities and ensuring smooth funding for the remainder of the fiscal year.